Amendments to Minnesota Business Corporation Act

If you are a shareholder of a Minnesota corporation you may be aware of the “squeeze out” process that occurs through a reduction of shares to a fractional share and the subsequent exercise of the corporation’s rights to cash out and redeem that fractional share (e.g. you previously owned 30,000 shares and after the reduction you own less than one share and the corporation seeks to repurchase that fractional share so that you are no longer a shareholder of the corporation).

Two well-known examples of this type of squeeze out in Minnesota are the reverse stock splits and repurchases done by Gander Mountain and Cold Spring Granite. Shareholders of both companies sued to protect their rights in connection with these transactions. In the Cold Spring Granite case, the shareholders argued that they should be entitled to dissenters’ rights (the right to obtain “fair value” for the shares and sometimes interest on the amount of “fair value”) but the Minnesota Supreme Court found no such rights under the Minnesota Business Corporation Act for this type of squeeze out. The defense for a shareholder or an investor against this type of transaction was generally an amendment to the articles of organization prohibiting such transactions or some other alternative. However, not all shareholders have the leverage needed to force an amendment to the articles or the ability to take alternative action.

The Minnesota legislature recently passed several amendments to the Minnesota Business Corporations Act that were signed into law by the Governor on April 25, 2014. The amendments (found in HF2190/SF1979) are effective as of August 1, 2014 (pursuant to Minn. Stat. §645.02). In what is certainly a response to the Cold Spring Granite decision, one of the amendments to the Minnesota Business Corporation Act provides for dissenters’ rights in the event of:

“an amendment to the articles in connection with a combination of a class or series under section 302A.402 that reduces the number of shares of the class or series owned by the shareholder to a fraction of a share if the corporation exercises its right to repurchase the fractional share so created under section 302A.423 . . . ” Minn. Stat. 302A.471

What does this mean in English? Essentially, if you hold a fractional share or are about to become the holder of a fractional share and the corporation is exercising its right to repurchase that fractional share, you may be entitled to dissenter’s rights and should seek the advice of legal counsel.